Glossary

ABSA (“Action à Bon de Souscription d'Action”) - Share with warrants attached
A stock warrant (“BSA”) is attached to shares issued by a company, which bestows the right to subscribe to new shares in the company.
Assets and liabilities guarantee
Guarantee given by the director to the financial investor based on the substance of asset and liabilities relative to documents used as a basis for the transaction.
Bonus share
Incentive mechanism for directors and employees consisting of awarding them bonus shares in the company, benefiting from a favourable tax regime but subject to particularly long vesting and lock-up conditions.
BSPCE (“Bons de Souscription de Parts de Créateur d'Entreprise”) - Company founder share warrants
Security giving access to share capital reserved for employees or executives of new companies, which benefit from a favourable tax regime and work like stock warrants.
Business Angels
Individuals who help the founder by investing their personal wealth and providing their advice and opinions.
Business Plan
3-5 year strategic development plan for the company with detailed comments concerning sales, competition, products, techniques, production methods, investment, human resources, IT, finance etc.
Buyout financing
Equity is used for the acquisition of an existing unlisted company by a team of managers from within or outside the company, helped by equity investors accompanied by financial investors. This type of financing can entail the creation of a holding company, which takes out debt in order to buy the company (leverage effect).
Capitalisation table
A table showing ownership of the company before and after an investment, taking into account existing or prospective dilutive mechanisms.
Carried interest
Share of profits paid to equity investors calculated on the basis of the income and capital gains of a private equity fund.
Closing
Final stage of a transaction with all parties (directors and financial investors) signing the legal documentation (in particular the shareholders’ agreement) and release of funds.
Data Room
Place where the main information documents about a company for sale can be viewed (at the offices of the company’s solicitors or advisors). Data rooms are used in particular for competitive bidding processes in order to allow the buyer to establish a formal price.
Due diligence - Audit
Set of measures for the research and control of information allowing equity investors to base their judgements on the company’s business activity, financial position, results, growth potential and organisational structure.
Executive summery
Summary of business plan in about ten lines to allow the venture capitalist to get a clear idea of the project and inspire him to go further by studying the business plan which will be notified in a second step.
Expansion capital
The company has reached its profitability threshold and generates a profit. Funds will be used to increase its production capacity and strengthen its sales team, develop new products and services, finance acquisitions and/or increase its working capital.
FCPI (“Fonds Communs de Placement dans l'Innovation”)
A type of FCPR fund investing a minimum quota in innovative companies.
FCPR (“Fonds Commun de Placement à Risques”)
One of the general family of UCITS, the FCPR is a French venture capital fund held in co-ownership through securities, which does not have independent legal status. It is administered by a management company approved by the Autorité des Marchés Financiers (AMF), acting in the name of and on behalf of the FCPR, which it represents in all matters externally and vis-à-vis third parties. FCPR invest in equity stakes in companies, respecting certain quotas depending on the type of investment.
FIP (“Fonds d'Investissement de Proximité”)
A type of FCPR fund investing in unlisted SMEs located in the same region.
Fund of funds
The fund of funds is a structure for the pooling of investments in a number of private equity funds.
Hurdle Rate
Minimum percentage return to shareholders of the private equity fund.
Investment agreement
Agreement between the company, its main shareholders and new investors defining each party's commitments with respect to the investment.
IRR (Internal Rate of Return)
Rate measuring the average annualised return of an investment, taking into account negative flows (cash outflows) and positive flows (cash inflows). It is used to measure and monitor the performance of private equity investments.
LBO (Leverage Buy Out)
The acquisition of a company by private equity investors, in collaboration with the management of the acquired company, financed through substantial use of borrowed funds to be repaid from the company's future cash flows. There are a number of possible contexts:
MBO (Management Buy Out): acquisition of a company with the management team (one or more managers, not shareholders or minority investors);
MBI (Management Buy In): acquisition of a company with one or more managers from outside the company;
BIMBO (Buy In Management Buy Out): acquisition of a company with an external manager in collaboration with the seller and/or managers of the company;
OBO (Owner Buy Out): acquisition of a company by a holding company owned jointly by the current business owner and financial investors.
Leverage effect
Multiplier effect on return on equity as a result of use of external financing.
Limited Partnership
An investment vehicle mainly used by asset managers in the United States and the United Kingdom, which is transparent for income tax purposes. A limited partnership is administered by an independent management company, referred to as the general partner (GP).
Management package
Incentive leaders tool in an operation of investment capital particularly capital-transmission/LBO) which consists of a direct financial incentive to capital valuation of the target company they manage or holding company.
Mezzanine debt
Financing in addition to senior debt, to which it is subordinate. It has a higher rate of interest than senior debt and offers the option of access to the company’s capital.
Milestone
Refers to the objectives that will serve as criteria for triggering certain clauses, such as the earn-out clause, issue of an additional tranche etc.
OBSA (“Obligations à Bons de Souscription d'Actions”) - Bonds with warrants attached
Security giving access to share capital issued by a company as an investment instrument, comprising a debt security (bond) and a stock warrant (BSA).
OCA (“Obligations Convertibles en Actions”) - Bonds convertible into shares
Security giving access to share capital issued by a company as an investment instrument, comprising a debt security (bond) and the option of converting this debt security into shares in the company.
ORA (Mandatorily convertible bonds)
Transferable securities issued by a company to a capital investor and giving access to the capital, comprising a debt security (bond) that will eventually be converted into the company's shares, not redeemed in cash.
Ordinary share
Share bestowing the same rights (voting right, preferential subscription right, right to dividends etc.), so that the rights of holders are proportionate to the share of capital they hold.
P2P (Public-to-Private)
Transaction consisting of buying the capital of a listed company with the involvement of a financial investor and supported by leverage (LBO structure), and delisting the company.
Post-Money Valuation
Valuation of a company after one or more investors have bought a stake.
Preferred share
Category of shares with preferential rights that may be political (increased right to information, right to a representative on management bodies etc.) or financial (right to priority return of amounts invested in the event of the liquidation or sale of the company etc.).
Pre-Money Valuation
Valuation of a company before one or more investors have bought a stake.
Price Adjustments
Set of mechanisms comprising a time-related dimension that allow for the adjustment of an “initial” subscription or purchase price of shares by an equity investor depending on events occurring after the said equity investor invests in the target company.
Private Equity
Acquisition of a stake in companies that are generally unlisted. Private equity provides fundamental support for unlisted companies throughout their existence. It provides financing for starting a business (venture capital), expansion (expansion capital), buyouts and acquisitions (LBO/turnaround finance).
Private equity fund
Vehicle grouping together investors with a view to making private equity investments and sharing the profits.
Profit sharing
Mechanism for sharing shareholders' profits or capital gains above a certain level of profit or above a certain return in the event the company is sold.
SCR (Société de Capital Risque)
An SCR is a French venture capital company that benefits from a special tax regime. Its legal form is that of a joint-stock company, and owners of the shares are capital investors. The company's sole purpose is to manage a portfolio of unlisted transferable securities that make up at least 50% of its net asset value.
Secondary funds
Secondary private equity funds specialise in buying units or shares in primary funds from investors seeking an early exit.
Senior debt
Within the financing structure for an LBO, this corresponds to depreciable debt contributed by banks. Annual interest and annual repayments have priority over mezzanine debt.
Shareholder agreement
Agreement between shareholders in the company (founders and capital investors) governing their relationships as shareholders.
Spin-off
Creation of a new company by one or more persons with or without the involvement of their employer or former employer. This therefore implies the creation of an entity that is legally and financially independent of the company of origin.
Stock options
Generic term referring to rights allowing access to capital under employee incentive plans, and more specifically to the legal mechanism involved in options to subscribe or buy shares.
Subscription form
Document formally confirming subscription to shares or other securities, signed by the investor and accompanied by payment of the subscription price. Signing of this document by the investor makes subscription to the rights issue effective.
Term sheet
Document formally setting out the investment proposal sent by the private equity firm to the investment target itself or to the latter’s advisory bank.
Turnaround finance
Equity investment in troubled companies for which measures allowing for a return to profitability have been identified and implemented.
Venture Capital
The company is a start-up or in the early stages of its operations. Financing is intended for the initial development and marketing of the product. Depending on the maturity of the project to be financed, venture capital can be sub-divided as follows:
  • Seed capital: first phase of financing the creation of the company, with capital allocated to research, valuation and development of an initial concept prior to the creation phase. This phase concerns primarily companies with a high level of technological content.
  • Early-stage financing: the company is at the very start of its operations. Financing is intended for the start of commercial and manufacturing activity.
  • Later-stage financing: this corresponds to a stage of growth in the company’s commercial and manufacturing activity before it becomes profitable.

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Source : AFIC